When IRS Approval Isn’t Enough

By Zack Anchors

The client owned stakes in three businesses that were highly profitable. IRS rules, however, seemed to limit him to participating in only one retirement plan, rather than one for each business.

To reap the significant tax-savings that can come from putting money into more than one retirement plan, “you have to show that the businesses aren’t really one business disguised as several businesses,” says Simon Singer of Advisor Consulting Group in Encino, Calif., who worked with the man’s CPA and tax attorney.

“Each business needs to have its own work force and its own profit center, and all the businesses can’t be owned 100% by the individual,” he added.

The client decided to make his case that the businesses were separate. After submitting information to the IRS and receiving its approval, he went ahead, participating in three plans. Over the next five years he took around $7 million in deductions, saving nearly $3 million in income taxes.

All seemed well, until the state taxing authority audited one of the businesses and balked. “They did not like that he had these three plans, despite the fact that the IRS, which has authority over the plans, had already blessed them,” says Singer. “The state didn’t have the time or budget to delve into the plan and determine whether it qualified, so the auditor just took an arbitrary position and stuck with it.”

A fuller version of this story ran January 12, 2012 for subscribers to Dow Jones Newswires at DJ NewsPlus, where other columns also can be found.

Comments (1 of 1)

Really?! Is this the Murdoch equivalent of bait and switch? You lure a reader with an incomplete version of a story and then provide a link to a SEPARATE subscription service where the reader can access the "FULLER VERSION" of the story. When all you needed to do was summarize the OLDER story in a more complete way.

WSJ business managers, in case you wish to see where that got the NYT and its subscription base, just read your own recaps of the NYT subscription site debacle. And, btw, this sort of cheap opportunism will drive that wedge between your readers and you and reduce the draw of the paid subscription that you extract from each of your online Journal subscribers.

Yes, you provide a valued service, and yes there is an underlying cost, but if you start to peddle other subscriptions to me INSIDE my subscription newspaper, (read other trashy but expensive prostitutes) I might just decide that the whole lot of you are a bunch of trashy floozies and find another channel for my desire.

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